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Mastering pandas for Finance by Michael Heydt

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Calculating payoff on options

The payoff of an option is a relatively straightforward calculation based upon the type of the option and is derived from the price of the underlying security on expiry relative to the strike price. The formula for the call option payoff is as follows:

Calculating payoff on options

The formula for the put option payoff is as follows:

Calculating payoff on options

We will model both of these functions and visualize their payouts.

The call option payoff calculation

An option gives the buyer of the option the right to buy (a call option) or sell (a put option) an underlying security ...

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